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Why Energy Efficiency Is Worth the Investment

| Friday January 8th, 2010 | 10 Comments

Investing in energy efficiency is a critical piece of the climate change puzzle. Given that the built environment accounts for 39 percent of total energy use in the US, real estate investment represents one of the most effective ways to implement energy efficiency strategies. A recent report from Ceres and Mercer, reviewed in Environmental Leader, outlines the business case that investing in energy efficiency enhances value in real estate portfolios. The report draws on key industry and academic research on building efficiency’s economic impacts and outlines steps and best practices for leveraging efficiency in real estate investments, including pertinent case studies about TIAA-CREF and CalPERS.

Furthermore, the results of the report indicate that companies who fail to factor energy efficiency into their real estate investment decisions might be assuming significant risk in the future and could be overlooking substantial opportunities to enhance returns.

Once the recession subsides and business begins to churn again, it will become increasingly important that building owners and developers do what they can to improve the overall performance of their buildings if they want to gain a competitive advantage. According to Ceres President Mindy Lubber, “This report documents what common sense tells us – that an energy efficient building is a more marketable building.”

The report provides some very worthwhile suggestions about how investors can begin the process of improving the energy efficiency of the properties they own. Benchmarking energy consumption of real estate portfolios is the key first step to make properties more energy efficient. Energy Star operates an easy-to-use online benchmarking tool, Portfolio Manager, that enables building owners to benchmark and rate the energy performance of their commercial buildings.

Much of the concern about energy efficiency improvements is how to finance projects. Although lending is tight these days, there are ways to make these projects work. Government incentives, such as EPAct’s Commercial Building Tax Deduction, or  ancillary sources of financing should not be ignored when prioritizing energy efficiency measures.

The benefits experienced by those in real estate will vary depending on the program implemented and the types of investments targeted, but previous research done to date and the data included in the Ceres report demonstrates that:

-Energy efficient buildings offer financial benefits in the form of higher rent, occupancy, valuation and lower operating costs.
-Poorly performing buildings represent an opportunity for a significant investment gain when it comes to energy efficiency.
-No and low cost energy efficiency improvements can have quick and dramatic impacts on property operating costs.

The results from this report may seem obvious, but there is still considerable reluctance with respect to energy efficiency investments. Hopefully reports like this one will help building owners, as well as homeowners, realize that energy efficiency investments can offer short payback periods and long term energy and cost savings. Homeowners, in particular, often say that energy efficiency is important to them, but when the rubber hits the road, they prefer to spend their money on improving their home’s aesthetics.

About Ceres

Ceres is a leading coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as global climate change.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to help solve benefit and human capital issues as well as health and retirement benefits.


▼▼▼      10 Comments     ▼▼▼

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  • wk

    Why so much talk? small electric AC units in every room will do it. No need to heat/cool the whole house; you save money.
    Electric AC units cost much less lthan large AC taking space in the the garrage and the dispensor in the yard and pipes thru the roof, , then maintinance will cost to much, small electric AC unit cost less than a hundreds. if it gets bad, buy new one and plug it in.; their no need to replace the whole large AC system and parts and labor that will cost thousands. Then small eletric AC units will last longer since they are turned off when not needed.Finally, electric AC units are noiseless, no water dripping like old ones, can be operared by remote or light switch, no need for air filter. The only issue, if we use small electric AC units might lay off more people than the jobs it create. The bottom line, your electric bill will be smaller and no need to wory about maintinance cost.

    • nickaster

      Why not just let people open the windows?

      • Cory Vanderpool

        Nick-

        This is a very valid point. The reason why many buildings constructed before 1975 are actually more energy efficient than newer buildings is because their windows still open! So instead of occupants running to adjust the heat/ac, they can simply open their own window.

        • nickaster

          Rocket Science!

  • betsyfranz

    This is a great article. Love it!!

    • Cory Vanderpool

      Thank you!

  • Skanderbeg Capital

    Cory, I think you've hit the nail on the head. The primary barrier to achieving higher energy efficiency in residential and commercial buildings is capital costs. But, like you say, there are other financing options out there. One model you might be interested in is that of Greenscape Capital Group. Greenscape operates an energy retrofit company which covers all of the upfront costs to the consumer. The project is financed by the energy savings over time. The model completely eliminates that barrier to entry.

    Greenscape is a publicly traded company (GRN on the TSX.V) and, as a result, the uniqueness and success of this new revenue model will be scrutinized by the masses. I think, and the market has reflected this so far, that market-based approaches to sustainability, environmentally sensitive operations, and energy efficiency not only make the most sense for the environment, but there's a significant upside for investors here too.

    Perhaps market incentives and unique business models can overcome the reluctance you've identified.

    • Cory Vanderpool

      Skanderberg Capital- great info…I am going to look into Greenscape now…maybe we can even do a piece on them for 3P. Thank you for your insightful feedback…I couldn't agree more with your comments.

  • http://GlobalPatriot.com GlobalPatriot

    Nice to see arguments for energy efficiency being made with regard to the long term value of the buildings as opposed to only the immediate gain from lower energy bills.

  • http://GlobalPatriot.com/ GlobalPatriot

    Nice to see arguments for energy efficiency being made with regard to the long term value of the buildings as opposed to only the immediate gain from lower energy bills.

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